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Trade Openness and Domestic Market Share

Evidence from Egypt Firm-Level Data

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Abstract

This paper analyzes how Egyptian manufacturing plants respond to changes in trade tariffs using firm-level data from the World Bank Enterprise Survey. Using Levinsohn and Petrin (Rev Econ Stud 70(2):317–341, 2003) methodology to calculate the total factor productivity for the Egyptian firms in the sample, the results stand in line with the heterogeneous-firm models of international trade predicting that fall in trade costs leads to a decrease in the market shares of domestic firms. The decrease of market share of the Egyptian manufacturing firms after trade reforms in 2004 reflects that the market became less concentrated after trade openness.

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Fig. 1

Source : Author elaboration using World Development Indicators

Fig. 2

Source: author elaboration from UNIDO database

Fig. 3

Source: author calculation using survey data

Fig. 4

Source: author calculation using survey data

Fig. 5

Source: author elaboration using WITS database

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Notes

  1. There are many models that study the possibility of collusion in a context of trade openness and found that cartel are more stable. For more details see: Brander and Krugman (1983), Pinto (1986), Ashournia et al. (2013) and Bond and Syropoulos (2008).

  2. It is a regional trade organization and free-trade area consisting of the Republic of Iceland, the Kingdom of Norway, the Swiss Confederation, and the Principality of Liechtenstein.

  3. Manufacturing refers to industries belonging to two-digit ISIC codes (15-37) (ISIC Rev.3.1).

  4. Multi-product firms usually represent around 40% of total firms (see Bernard et al. (2010) for the US case).

  5. As a robustness check, Table 11 in the Appendix reports the same set of results with TFP calculated at the sector level.

  6. For example to instrument for the tariff of the 4-digit product(1593), I use the tariff of the following product (1594) in the same classification.

  7. Note that variation in the tariff level is negative, so lower variation reflects that the market becomes more liberalized than before.

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Acknowledgments

I am very grateful to Jean-Philippe Tropeano, Lionel Fontagné, Marcelo Olarreaga and Angelo Secchi for many challenging interactions on this topic. I also would like to thank Philippe Gagnepain, Stéphane Gauthier and David Mirza as well as two anonymous referees for their helpful comments and suggestions.

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  1. GAEL, INRA, University Grenoble Alpes, Grenoble, France

    Aya Elewa

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Appendix: Robustness Check

Appendix: Robustness Check

Table 11 Robustness check with TFP calculated by sector
Full size table
Table 12 Domestic firms’ market share and the level of tariffs (weighted mean)
Full size table
Table 13 Data sources and variables definition
Full size table

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Elewa, A. Trade Openness and Domestic Market Share. J Ind Compet Trade 19, 441–463 (2019). https://doi.org/10.1007/s10842-019-00295-3

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